Both Sides of The Coin: The Story of The Central Bank of Barbados 1972-2017

53 During the early part of 1975, sterling, and by extension the Barbados dollar, continued to weaken. In May, the Bank, noting the adverse impact on the cost of living, recommended that the minister should discuss the exchange rate issue with his colleagues during the upcoming Caricom Finance Ministers’ meeting in Barbados. In the event that there was no Caricom consensus on the issue, the Bank suggested that Barbados should formulate an independent exchange rate policy. During the Finance Ministers’ meeting, Barrow informed his Caricom colleagues of his intention to switch the currency peg from sterling to the US dollar but did not discuss the proposed rate. Deciding on a parity Blackman recalls that the final decision on the rate was made by the prime minister and himself on the afternoon of Thursday, July 3, 1975. Barrow concurred with the governor’s recommendations and agreed to an exchange rate of Bds$2 to US$1, which was thought to be the most convenient for a tourism industry. This information was conveyed to the Board members at a meeting later in the day. The governor noted that a study by the Research Department had concluded that the impact on the balance of payments would not be significantly different whether the exchange rate against the US dollar was Bds$2, Bds$2.10 or Bds$2.16. 30 This had influenced his decision to strongly recommend a two-to-one rate. The governor informed the commercial bank managers about the decision during a meeting at 5:00 p.m. on the following day. On Saturday, July 5, 1975, Prime Minister Barrow went public with the Government’s decision to break the long-standing link with sterling and fix the Barbados dollar to the US dollar. The foreign exchange market was closed on the following Monday (July 7), and reopened on the next day with the new exchange rate for the Barbados dollar in effect. As a consequence of the change in parity, a fixed rate of J$1 to Bds$2.20 was established against the Jamaica dollar which was already Chapter 2: The Early Years: 1972 - 1975